Pump and Dump Scams Prompt SEC Alert

The SEC is warning investors about a sharp increase in spam email linked to pump and dump stock schemes.

Pump and dump promoters frequently claim to have inside information about an impending development, the SEC said. Others may say they use an infallible system that uses a combination of economic and stock market data to pick stocks.

However, these scams are the “inbox equivalent of a boiler room sales operation, hounding investors with potentially false information about a company,” according to the SEC.

The fraudsters behind these scams stand to gain by selling their shares after the stock price is pumped up by the buying frenzy they create through the mass e-mail push.

Once the fraudsters dump their shares by selling them and stop hyping the stock, investors lose their money or are left with worthless or near worthless stock, the SEC said.

These false claims could also be made on social media such as Facebook and Twitter as well as on bulletin boards and chat room pages, according to the SEC.

“Investors should always be wary of unsolicited investment offers in the form of an e-mail from a stranger,” said Lori Schock, director of the SEC's Office of Investor Education and Advocacy. “The best response to investment spam is to hit delete.”